United Kingdom House of Lords Decisions

Parliamentary Archives,
HL/PO/JU/18/248

D. &. F. Estates Limited and others (Appellants)

v.
Church Commissioners for England and others (Respondents)

JUDGMENT

Die Jovis 14° Julii 1988

Upon Report from the Appellate Committee to whom was
referred the Cause D. & F. Estates Limited and others against
Church Commissioners for England and others, That the
Committee had heard Counsel on Monday the 25th, Tuesday the
26th, Wednesday the 27th and Thursday the 28th days of April
last upon the Petition and Appeal of D. & F. Estates Limited,
of 18 Maddox Street, London W1, and of Melvin Tillman and
Malka Tillman of La Roccabella, Avenue Princess Grace, Monte
Carlo, in the Principality of Monaco, praying that the matter
of the Order set forth in the Schedule thereto, namely an
Order of Her Majesty's Court of Appeal of the 12th day of
February 1988, might be reviewed before Her Majesty the Queen
in Her Court of Parliament and that the said Order might be
reversed, varied or altered or that the Petitioners might have
such other relief in the premises as to Her Majesty the Queen
in Her Court of Parliament might seem meet; as upon the Case
of Wates Limited lodged in answer to the said Appeal (so much
of the Appeal as related to the Church Commissioners for
England having been withdrawn by order of the House of the
14th day of April 1988); and due consideration had this day of
what was offered on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and
Temporal in the Court of Parliament of Her Majesty the Queen
assembled, That the said Order of Her Majesty's Court of
Appeal (Civil Division) of the 12th day of February 1987
complained of in the said Appeal be, and the same is hereby,
Affirmed and that the said Petition and Appeal be, and the
same is hereby, dismissed this House: And it is further
Ordered, That the Appellants do pay or cause to be paid to the
said Respondents the Costs incurred by them in respect of the
said Appeal, the amount thereof to be certified by the Clerk
of the Parliaments if not agreed between the parties.

Cler: Asst. Parliamentor:

Judgment: 14.7.88




HOUSE OF LORDS

D. & F. ESTATES LIMITED AND OTHERS
(APPELLANTS)

v.




CHURCH COMMISSIONERS FOR ENGLAND AND OTHERS

(RESPONDENTS)

Lord Bridge of Harwich
Lord Templeman
Lord Ackner
Lord Oliver of Aylmerton
Lord Jauncey of Tullichettle




LORD BRIDGE OF HARWICH

My Lords,

The only parties to the litigation from which this appeal
arises who are now concerned in the appeal are D. & F. Estates
Ltd. and Mr. and Mrs. Tillman, who were plaintiffs in the action,
and Wates Ltd. who were the third defendants in the action.
Between 1963 and 1965 Wates were the main contractors employed
by a company now in liquidation to build a block of flats on land
belonging to the Church Commissioners in Gloucester Square,
London W.2. The building was completed in October 1965 and was
named Chelwood House. On 15 October 1965 the Church
Commissioners granted a lease of flat 37 to D. & F. Estates for a
term of 98 years from 25 March 1963. D. & F. Estates is one of
a group of companies controlled by Mr. and Mrs. Tillman. From
1965 to 1981 Mr. and Mrs. Tillman occupied flat 37 pursuant to an
arrangement with D. & F. Estates, the terms of which we do not
know, but which I presume to have been a licence.

In August 1980, while Mr. and Mrs. Tillman were away on
holiday and the flat was being redecorated, the decorators
discovered that the plaster on certain ceilings and on one wall was
loose and some of the plaster fell down. All the loose plaster
then discovered which had not already fallen was hacked off and
the areas affected were replastered and redecorated at a cost of
£10,676.70. The present action was commenced in December 1980
advancing claims by D. & F. Estates in respect of that damage
and by Mr. and Mrs. Tillman in respect of disturbance caused to
them while the works in the flat were being carried out. But



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following an expert investigation in 1983 further defective plaster
to both walls and ceilings was discovered and when the action
came for trial before Judge Esyr Lewis Q.C. in June 1985 the
damages claimed by D. & F. Estates included the estimated cost
of further remedial work and prospective loss of rent which would
be suffered while that remedial work was carried out.

When Chelwood House was built the plaster-work was
carried out not by Wates themselves but by a firm of sub-
contractors whom they employed called R. S. Hitchens. The judge
found that all the plaster applied to concrete surfaces was
defective because the sub-contractors, using a particular plaster
then newly on the market called "Gyplite," had failed to follow
the manufacturers' instructions. They should have applied one coat
of bonding plaster and one coat of finishing plaster, but instead
had interposed a coat of browning plaster and it was this that in
due course caused plaster, which should have remained sound for
the lifetime of the building, to lose its key and require
replacement. He said:

"in my judgment, a careful and competent plasterer would
not have taken the risk of departing from what I find to be
clear and unambiguous instructions to use bonding plaster
followed by finishing plaster on concrete surfaces generally.
In other words I consider that the plasterers were at fault.
It was suggested on behalf of the plaintiffs that a reason
why the plasterers did not follow the manufacturers'
instructions was because it was more economical and easier
to use undercoats of bonding plaster and browning plaster to
achieve the desired thickness instead of a single undercoat
of bonding plaster. I am not satisfied, having heard the
evidence of Mr. Marshall about the cost of applying the
different grades of plaster, that this is the correct
explanation and it is not necessary for me to come to any
conclusion about it. It is sufficient for me to say that in
my judgment the plasterers did not exercise due care in
that they failed to follow the manufacturers' instruction."

When he turned to consider the liability of Wates, the judge,
in a key passage, said:

"I have to decide in this case what the scope of Wates'
duty of care to the three plaintiffs was and whether the
plaintiffs or any of them have suffered loss as a result of
its breach by Wates. The duty of care itself is of course
not delegable. In the end, [counsel for the plaintiffs']
submission was that Wates owed a duty to the plaintiffs
adequately to supervise the work of the plasterers and that
they failed to discharge that duty. I consider this to be the
correct analysis of the scope and extent of Wates' duty of
care. It has never been suggested that Wates acted
improperly in sub-contracting the plastering work or that
they failed to take care to appoint competent sub-
contractors. Clause 17 of the J.C.T. form of contract
entitled Wates to sub-contract with a written consent of the
architect and the evidence of Mr. Perry showed that great
care was taken in the choice of sub-contractors. If, as I
find, Wates acted properly in sub-contracting the plastering
work, the only way in which they could discharge their duty



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of care was by taking reasonable steps to see that the
plasterers did their work properly. Wates cannot, in my
judgment, be held liable to the plaintiffs merely because the
plasterers did not in fact do their work properly."

Later the judge said:

"should proper supervision by Wates have ascertained that
the manufacturers' instructions were not being followed in
relation to the plastering of concrete surfaces in flat 37?
In my view the critical issue is whether Wates^’ supervisors
knew or ought to have known what the manufacturers'
instructions were."

The judge then reviewed the evidence of witnesses in relation to
the general practice of supervision of sub-contractors by main
contractors. He found that Wates’ supervisors must have known
that three coats of plaster were being applied. He made no
finding that they knew that this contravened the manufacturers'
instructions, but he held in effect that they ought to have known
and added:

"I therefore conclude that Wates were in breach of their
duty to provide adequate and proper supervision of the
plastering work in relation to the concrete surfaces and that
they are liable in negligence to the plaintiffs for this breach
of their duty."

The judge awarded damages exclusive of interest to D. & F.
Estates of £10,676.70 in respect of the cost of the remedial work
undertaken in 1980, £53,549 in respect of the estimated cost of
future remedial works, and £24,000 in respect of loss of rent while
the future remedial works were carried out. To Mr. and Mrs.
Tillman he awarded £500 each, exclusive of interest, in respect of
loss of amenity during the period when they were occupying the
flat while the remedial works were done in 1980.

On appeal by Wates the Court of Appeal (Fox and Glidewell
L.JJ and Sir Roualeyn Cumming-Bruce) reversed the judge's
decision primarily on the ground that Wates, having employed
competent sub-contractors to carry out the plastering work owed
no further duty of care to the plaintiffs in relation to the
execution of the work by the sub-contractors. But the Court of
Appeal also considered a submission made on behalf of Wates that
the cost of repairing the defective plaster, even if the plaster
work had been done by their own employees, was not damage
which D. & F. Estates could recover in tort since it represented
pure economic loss. The Court of Appeal rejected this submission
in relation to the cost of repairs carried out in 1980 on the
ground that D. & F. Estates were liable to Mr. and Mrs. Tillman
to carry out the repairs, but accepted it in relation to the cost of
future remedial works not yet carried out, although they assumed
the factual premise, which they did not think it open to Wates to
challenge, that the remaining defective plaster represented a
continuing risk of personal injury.

The plaintiffs now appeal by leave of your Lordships' House.



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In relation to both issues, it is instructive and, I think,
necessary to consider two developments of the law in relation to a
builder's liability in tort for defective premises which have been
effected on the one hand by statute and on the other by judicial
development of the law by the adaptation and application of
common law principles to situations to which they had not
previously been applied. Both these developments have taken place
since 1970. Both have effected far-reaching changes in the law,
at all events as it had been supposed to be before 1970. But the
two developments have been markedly different in their scope and
effect. The statutory development enacted by the Defective
Premises Act 1972 effected clear and precise changes in the law
imposing certain specific statutory duties subject to carefully
defined limitations and exceptions. This change did not, of course,
operate retrospectively. The common law developments have
effected changes in the law which inevitably lack the kind of
precision attainable by statute though limits have had to be and
are still being worked out by decisions of the courts in a spate of
ensuing litigation, including the instant case, and since our
jurisprudence knows nothing of the American doctrine of
"prospective overruling" and the law once pronounced
authoritatively by the courts here is deemed always to have been
the law, the changes have full retrospective operation.

The Act of 1972 was enacted following and substantially
implementing the recommendations of a Law Commission report on
"Civil Liability of Vendors and Lessors for Defective Premises"
(Law Commission No. 40) dated 15 December 1970. The report
followed the issue of two working papers and extensive
consultations thereupon as explained in paragraph 5 to 8. The
report makes this clear distinction between different kinds of
defects in defective premises:

"2. We have set out, therefore, to examine the liability of
a vendor or lessor of defective premises both in contract
and in tort; and it follows that we use the term 'defective'
in two different senses. From the point of view of tort
liability premises are defective only if they constitute a
source of danger to the person or property of those who are
likely to come on to them or to find themselves in their
vicinity. In the contractual sense they are defective if
their condition falls short of the standard of quality which
the purchaser or lessee was entitled to expect in the
circumstances. We refer to these different kinds of defects
as dangerous defects and defects of quality respectively,
where it is necessary to point the contrast."

In Part B of the report, dealing with "defects of quality" in the
sense defined in the passage quoted, the report records, at
paragraph 14:

"We are not aware of any substantial criticism of the
present law as it applies to commercial or industrial
premises. In such cases the parties are normally in a
position to protect their own interests with the help of their
professional advisers. The appropriate terms for inclusion in
the contract in such cases are the subject of negotiation.
Considerable disquiet has, however, been expressed in recent
years as to the operation of the law in relation to the
purchase of dwellings."

- 4 -

There follows a full consideration of the position of builders and
others concerned in the construction of dwellings leading to a
series of recommendations from which I quote two significant
paragraphs:

"26. Amendment of the law should be directed at improving
the legal position of the purchasers of dwellings and should
in our view be designed to achieve the following results:- (a)
that a builder of a dwelling (i.e. anyone who provides a
dwelling by constructing a new building or converting or
enlarging an existing one) should be placed under a duty,
similar to his common law obligations, to build properly and
should not be able to contract out of this duty; (b) that this
duty should be imposed not only on builders, but also on
anyone else, in particular any sub-contractor or professional
man, who takes on work for or in connection with the
provision of a new dwelling . . .; (e) that a right of action
in respect of faulty building of a dwelling should be
available during a limited period - (i) if the builder builds to
the order of a client, to that client; (ii) if the builder sells
to a purchaser, to the purchaser; and (iii) in either event, to
anyone who subsequently acquires an interest in the
dwelling; (d) that those who (without being builders or
otherwise concerned with work taken on for or in connection
with the provision of the dwelling) arrange in the course of
their business for the construction of dwellings for sale or
letting to the public, should be placed under the same duty
as builders towards persons who acquire interests in those
dwellings. ... 32. Those persons on whom the obligations
are to be imposed should not, however, be left at risk for
an indefinite period. There should be a limit of time within
which an action could be brought, running from the date
when the work was completed."

The long title of the Act of 1972 is

"An Act to impose duties in connection with the provision
of dwellings and otherwise to amend the law of England and
Wales as to liability for injury or damage caused to persons
through defects in the state of premises"

and the following provisions of section 1 enact, with only minor
changes of draftsmanship, provisions contained in the draft bill
annexed to the Law Commission's report:

"(1) A person taking on work for or in connection with the
provision of a dwelling (whether the dwelling is provided by
the erection or by the conversion or enlargement of a
building) owes a duty - (a) if the dwelling is provided to the
order of any person, to that person; and (b) without
prejudice to paragraph (a) above, to every person who
acquires an interest (whether legal or equitable) in the
dwelling; to see that the work which he takes on is done in
a workmanlike or, as the case may be, professional manner,
with proper materials and so that as regards the work the
dwelling will be fit for habitation when completed. . . (4)
A person who - (a) in the course of a business which
consists of or includes providing arranging for the provision



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of dwellings or installations in dwellings; or (b) in the
exercise of a power of making such provision or
arrangements conferred by or by virtue of any enactment;
arranges for another to take on work for or in connection
with the provision of a dwelling shall be treated for the
purposes of this section as included among the persons who
have taken on the work. (5) Any cause of action in
respect of a breach of the duty imposed by this section
shall be deemed, for the purposes of the Limitation Act
1939, the Law Reform (Limitation of Actions, &c.) Act 1954
and the Limitation Act 1963, to have accrued at the time
when the dwelling was completed, but if after that time a
person who has done work for or in connection with the
provision of the dwelling does further work to rectify the
work he has already done, any such cause of action in
respect of that further work shall be deemed for those
purposes to have accrued at the time when the further work
was finished."

Section 2 of the Act then specifically excludes from the
application of section 1 dwellings to which an "approved scheme"
applies conferring rights in respect of defects when they are first
let or sold for habitation. This limitation upon the new statutory
duty does not follow directly from any specific recommendation in
the Law Commission's report, although the report discusses the
scheme operated by the National House-Builders Registration
Council and it was presumably such schemes as this that
Parliament contemplated might receive the approval of the
Secretary of State under section 2, conferring exemption from
liability for breach of statutory duty under section 1.

Between the date of the Law Commission's report and the
passing of the Act of 1972 the courts were concerned with the
first of a series of cases relating directly to the liability in tort
of local authorities for the negligent exercise of their powers
under the Public Health Act 1936 or other parallel legislation in
respect of defects in premises erected in contravention of building
byelaws, but also indirectly with the liability in tort of the builder
himself. This was Dutton v. Bognor Regis Urban District Council
[1971] 2 All E.R. 1003; [1972] 1 Q.B. 373 decided by Cusack J. at
first instance in March 1971 and by the Court of Appeal in
December 1971, the very month in which the Bill which became
the Act of 1972 was introduced into the House of Commons. The
case related to a house with defective foundations which settled
and cracked. The aspect of the judgments relevant for present
purposes is that concerned with the liability of the builder, had he
been sued. Referring to the application of the principle of
Donoghue v. Stevenson [1932] AC 562 to the liability of a builder
in tort for injury caused by dangerous defects in a building, Lord
Denning M.R. said in a well known passage [1972] 1 Q.B. 373, 393-
394:

"The distinction between chattels and real property is quite
unsustainable. If the manufacturer of an article is liable to
a person injured by his negligence, so should the builder of
a house be liable. After the lapse of 30 years this was
recognised. In Gallagher v. N. McDowell Ltd. [1961] N.L
26, Lord MacDermott C.J. and his colleagues in the
Northern Ireland Court of Appeal held that a contractor who



- 6 -

built a house negligently was liable to a person injured by
his negligence. This was followed by Nield J. in Sharpe v.
E. T. Sweeting & Son Ltd. [1963] 1 W.L.R. 665. But the
judges in those cases confined themselves to cases in which
the builder was only a contractor and was not the owner of
the house itself. When the builder is himself the owner,
they assumed that Bottomley v. Bannister [1932] 1 K.B. 458
was still authority for exempting him from liability for
negligence. There is no sense in maintaining this
distinction. It would mean that a contractor who builds a
house on another's land is liable for negligence in
constructing it, but that a speculative builder, who buys land
and himself builds houses on it for sale, and is just as
negligent as the contractor, is not liable. That cannot be
right. Each must be under the same duty of care and to
the same persons."

This view of the law has, of course, never been doubted since.
But the presently relevant passage in the judgment is that headed
"Economic Loss," at p. 396, which reads:

"Mr. Tapp [for the council] submitted that the liability of
the council would, in any case, be limited to those who
suffered bodily harm: and did not extend to those who only
suffered economic loss. He suggested, therefore, that
although the council might be liable if the ceiling fell down
and injured a visitor, they would not be liable simply
because the house was diminished in value. He referred to
the recent case of S.C.M. (United Kingdom) Ltd, v. W. J.
Whittall & Son Ltd. [1971] 1 Q.B. 337. I cannot accept this
submission. The damage done here was not solely economic
loss. It was physical damage to the house. If Mr. Tapp's
submission were right, it would mean that if the inspector
negligently passes the house as properly built and it
collapses and injures a person, the council are liable: but if
the owner discovers the defect in time to repair it - and he
does repair it - the council are not liable. That is an
impossible distinction. They are liable in either case. I
would say the same about the manufacturer of an article.
If he makes it negligently, with a latent defect (so that it
breaks to pieces and injures someone), he is undoubtedly
liable. Suppose that the defect is discovered in time to
prevent the injury. Surely he is liable for the cost of
repair."

Referring to the issue of economic loss, Sachs L.J. said at pp.
403-404:

In the instant case there is ample evidence of physical
damage having occurred to the property. But it has been
argued that this damage is on analysis the equivalent of a
diminution of the value of the premises and does not rank
for consideration as physical injury. Mr. Tapp found himself
submitting that if, for instance, the relevant defect had
been in the ceiling of a room, and if it fell on somebody's
head or on to the occupier's chattels and thus caused
physical damage, then (subject of course to his other points
failing) there could be a cause of action in negligence, but
not if it fell on to a bare floor and caused no further



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damage. Apparently in the former case damages would be
limited so as to exclude repairs to the ceiling: in the latter
case there would be no cause of action at all. That subtle
line of argument failed to attract me and would lead to an
unhappily odd state of the law."

Stamp L.J., although he expressed no concluded opinion,
indicated a significantly different approach to the liability of the
builder in the following passage, at pp.414-415

"I now come to consider the submission advanced by Mr.
Tapp to the effect that it would be an extension of the law
to hold that the particular injury suffered by the plaintiff is
an injury for which damages may be recovered. It is
pointed out that in the past a distinction has been drawn
between constructing a dangerous article and constructing
one which is defective or of inferior quality. I may be
liable to one who purchases in the market a bottle of ginger
beer which I have carelessly manufactured and which is
dangerous and causes injury to person or property; but it is
not the law that I am liable to him for the loss he suffers
because what is found inside the bottle and for which he
has paid money is not ginger beer but water. I do not
warrant, except to an immediate purchaser, and then by the
contract and not in tort, that the thing I manufacture is
reasonably fit for its purpose. The submission is, I think, a
formidable one and in my view raises the most difficult
point for decision in this case. Nor can I see any valid
distinction between the case of a builder who carelessly
builds a house which, though not a source of danger to
person or property, nevertheless, owing to a concealed
defect in its foundations, starts to settle and crack and
becomes valueless, and the case of a manufacturer who
carelessly manufactures an article which, though not a
source of danger to a subsequent owner or to his other
property, nevertheless owing to a hidden defect quickly
disintegrates. To hold that either the builder or the
manufacturer was liable except in contract would be to open
up a new field of liability the extent of which could not, I
think, be logically controlled, and since it is not in my
judgment necessary to do so for the purposes of this case, I
do not, more particularly because of the absence of the
builder, express an opinion whether the builder has a higher
or lower duty than the manufacturer."

The next important decision is that of the New Zealand
Court of Appeal in Bowen v. Paramount Builders (Hamilton) Ltd.
[1977] 1 N.Z.L.R. 394. This was another case of defective
foundations. The defendant builders had erected a building
comprising two flats under contract with the first owner who sold
it to the plaintiff. The plaintiff sued the builders for negligence
in failing to provide adequate foundations. The building had
settled and cracked. Remedial work was proposed to be
undertaken to prevent further subsidence and to restore the
building as far as possible, but it was impossible to eliminate the
sag in the building so as to restore it fully to its original
condition. Speight J. had dismissed the action, saying [1975] 2
N.Z.L.R. 546, 555-556:

- 8 -

"It is a claim for the diminished value of the article, as for
example, if the lady in Donoghue v. Stevenson had sued for
damages for inferior quality ginger beer. The claim for
such a defect in the quality of an article purchased is an
action in contract not in tort and privity of contract still
remains an essential part of that concept."

The Court of Appeal took a different view. Richmond P.,
although dissenting on the facts, expressed an opinion on the
applicable law with which both Woodhouse and Cooke JJ. agreed.
He said, at pp. 410-411:

"Does damage to the house itself give rise to a cause of
action? As I have already said, I agree with Speight J. that
the principles laid down in Donoghue v. Stevenson apply to a
builder erecting a house under a contract with the owner.
He is under a duty of care not to create latent sources of
physical danger to the person or property of third persons
whom he ought reasonably to foresee as likely to be
affected thereby. If the latent defect causes actual
physical damage to the structure of the house then I can
see no reason in principle why such damage should not give
rise to a cause of action, at any rate if that damage occurs
after the house has been purchased from the original owner.
This was clearly the view of Lord Denning M.R. and of
Sachs L.J. in Dutton v. Bognor Regis Urban District Council
[1972] 1 Q.B. 373, 396, 403-404. In the field of products
liability this has long been the law in the United States: see
Prosser's Law of Torts, 4th ed., p. 665, s. 101, and
Quackenbush v. Ford Motor Co. (1915) 167 App.Div. 433; 153
N.Y.S. 131. For the purposes of the present case it is not
necessary to deal with the question of ‘pure^’ economic loss,
that is to say economic loss which is not associated with a
latent defect which causes or threatens physical harm to the
structure itself. What is the correct measure of damages in
the present case? As earlier explained, it has not been
feasible in the present case to raise the building in such a
way as to get rid of the sag which has occurred in the
structure, and at the same time to strengthen the
subfoundations. The proposed alterations are designed: (a)
to reduce the risk of further subsidence by getting rid of
the weight of the concrete block wall dividing the two
units; (b) to restore the appearance of the house as far as
possible; and

(c) to put doors and windows into proper working
condition. As to (a), when a defect has actually caused

structural damage to a building it must be proper for the
owner not only to repair the damage but also to take
reasonable steps to prevent further damage, rather than wait
for that damage to occur. In some cases this may give rise
to the question whether some credit ought not to be given
to the builder for betterment but no such question arises in
the present case. As to (b), I can see no reason why the
Bowens should not be able to claim for the cost of
alterations carried out to improve the appearance of the
building in circumstances where it is not feasible to raise
the building in such a way as to eliminate the sag in the
structure. Finally, there can, I think, be no question as to



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(c). These repairs are obviously necessary. . . . Apart from
the actual cost of the alterations, there is a sum of $2,000
claimed as depreciation or diminution in value. This sum
represents the difference between the market value of the
property after all repairs are done and the market value had
there been no subsidence. This claim, in my opinion, should
be allowed. In one sense it can be described as economic
loss, but it is economic loss directly and immediately
connected with the structural damage to the building and as
such is properly recoverable."

Anns v. Merton London Borough Council [1978] AC 728 was
again a case of defective foundations, but, like Dutton's case, one
in which the only defendant was the local authority so that the
scope of the builder's duty of care and the measure of damages
for any breach of that duty were not directly in issue. Lord
Wilberforce, with whose speech Lord Diplock, Lord Simon of
Glaisdale and Lord Russell of Killowen agreed, dealt with the
position of the builder and the damages recoverable in the
following passage, at pp. 758-760:

"The position of the builder. I agree with the majority in
the Court of Appeal in thinking that it would be
unreasonable to impose liability in respect of defective
foundations upon the council, if the builder, whose primary
fault it was, should be immune from liabilty. So it is
necessary to consider this point, although it does not
directly arise in the present appeal. If there was at one
time a supposed rule that the doctrine of Donoghue v.
Stevenson [1932] AC 562 did not apply to realty, there is
no doubt under modern authority that a builder of defective
premises may be liable in negligence to persons who thereby
suffer injury: see Gallagher v. N. McDowell Ltd. [1961] N.I.
26 per Lord MacDermott C.J. - a case of personal injury.
Similar decisions have been given in regard to architects -
(Clayton v. Woodman & Son (Builders) Ltd. [1962] 2 Q.B. 533
and Clay v. A. J. Crump & Sons Ltd. [1964] 1 Q.B. 533).
Gallagher's case expressly leaves open the question whether
the immunity against action of builder owners, established
by older authorities (e.g. Bottomley v. Bannister [1932] 1
K.B. 458) still survives. That immunity, as I understand it,
rests partly upon a distinction being made between chattels
and real property, partly upon the principle of 'caveat
emptor' or, in the case where the owner leases the
property, on the proposition 'for, fraud apart, there is no
law against letting a tumbledown house': see Robbins v.
Jones (1863) 15 C.B.N.S. 221, 240 per Erie C.J. But leaving
aside such cases as arise between contracting parties, when
the terms of the contract have to be considered (see Voli v.
Inglewood Shire Council (1963) 110 C.L.R. 74, 85 per
Windeyer J.), I am unable to understand why this principle
or proposition should prevent recovery in a suitable case by
a person, who has subsequently acquired the house, upon the
principle of Donoghue v. Stevenson: the same rules should
apply to ail careless acts of a builder: whether he happens
also to own the land or not. I agree generally with the
conclusions of Lord Denning M.R. on this point in Dutton v.
Bognor Regis Urban District Council [1972] 1 Q.B. 373, 392-
394. In the alternative, since it is the duty of the builder



- 10 -

(owner or not) to comply with the byelaws, I would be of
opinion that an action could be brought against him, in
effect, for breach of statutory duty by any person for whose
benefit or protection the byelaw was made. So I do not
think that there is any basis here for arguing from a
supposed immunity of the builder to immunity of the
council. Nature of the damages recoverable and arising of
the cause of action. There are many questions here which
do not directly arise at this stage and which may never
arise if the actions are tried. But some conclusions are
necessary if we are to deal with the issue as to limitation.
The damages recoverable include all those which foreseeably
arise from the breach of the duty of care which, as regards
the council, I have held to be a duty to take reasonable
care to secure compliance with the byelaws. Subject always
to adequate proof of causation, these damages may include
damages for personal injury and damage to property. In my
opinion they may also include damage to the dwelling-house
itself; for the whole purpose of the byelaws in requiring
foundations to be of a certain standard is to prevent
damage arising from weakness of the foundations which is
certain to endanger the health or safety of occupants. To
allow recovery for such damage to the house follows, in my
opinion, from normal principle. If classification is required,
the relevant damage is in my opinion material, physical
damage, and what is recoverable is the amount of
expenditure necessary to restore the dwelling to a condition
in which it is no longer a danger to the health or safety of
persons occupying and possibly (depending on the
circumstances) expenses arising from necessary displacement.
On the question of damages generally I have derived much
assistance from the judgment (dissenting on this point, but
of strong persuasive force) of Laskin J. in the Canadian
Supreme Court case of Rivtow Marine Ltd, v. Washington
Iron Works [1973] 6 W.W.R. 692, 715 and from the
judgments of the New Zealand Court of Appeal (furnished by
courtesy of that court) in Bowen v. Paramount Builders
(Hamilton) Ltd. [1975] 2 N.Z.L.R. 5*6. When does the cause
of action arise? We can leave aside cases of personal
injury or damage to other property as presenting no
difficulty. It is only the damage for the house which
requires consideration. In my respectful opinion the Court
of Appeal was right when, in Sparham-Souter v. Town and
Country Developments (Essex) Ltd. [1976] Q.B. 858 It
abjured the view that the cause of action arose immediately
upon delivery, i.e., conveyance of the defective house. It
can only arise when the state of the building is such that
there is present or imminent danger to the health or safety
of persons occupying it. We are not concerned at this stage
with any issue relating to remedial action nor are we called
upon to decide upon what the measure of the damages
should be; such questions, possibly very difficult in some
cases, will be for the court to decide."

It is particularly to be noted that Lord Wilberforce founded
his view of the builder's liability on the alternative grounds of
negligence and breach of statutory duty and that his opinion as to
the nature of the damages recoverable is strictly applicable to the
liability of the local authority, and perhaps also to the liability of



- 11 -

the builder for breach of duty under the byelaws, but is obiter in
relation to the builder's liability for the common law tort of
negligence. It is, moreover, difficult to understand how a builder's
liability, whatever its scope, in respect of a dangerous defect in a
building can arise only when there is imminent danger to the
health and safety of occupiers. In any event the last sentence in
the passage quoted leaves open the critical question as to the
measure of damages in relation to remedial action.

Batty v. Metropolitan Property Realisations Ltd. [1978] Q.B.
554, to which I was a party, is a decision with unusual features.
A house had been built on a site negligently selected by developers
and builders acting together which was so inherently unsafe that,
following a predictable landslide, the house was liable to fall down
and was a continuing danger to its occupants and others. The
house had become valueless and represented a danger which could
effectively only be removed by demolition. But the liability in
tort of the developers was held to arise from breach of a duty
corresponding to that which they had assumed to the plaintiffs in
contract. This I regard as of no present relevance. Liability of
the builders in tort, however, for the plaintiffs' loss of the value
of the house is one which I would now question for reasons I will
later explain. My own short extemporary judgment, which treats
the issue of the builder's liability in damages and the fundamental
question raised by Stamp L.J. in Dutton v. Bognor Regis Urban
District Council [1972] 1 Q.B. 373, 414-415 as settled by the
speech of Lord Wilberforce in Anns v. Merton London Borough
Council [1978] AC 728, 758-760 was, I now think, unsound.

My Lords, I do not intend to embark on the daunting task
of reviewing the wealth of other, mostly later, authority which
bears, directly or indirectly, on the question whether the cost of
making good defective plaster in the instant case is irrecoverable
as economic loss, which seems to me to be the most important
question for determination in the present appeal. My abstention
may seem pusillanimous, but it stems from a recognition that the
authorities, as it seems to me, speak with such an uncertain voice
that, no matter how searching the analysis to which they are
subject, they yield no clear and conclusive answer. It is more
profitable, I believe, to examine the issue in the light of first
principles.

However, certain authorities are of prime importance and
must be considered. The decision of your Lordships' House in
Junior Books Ltd, v. Veitchi Co. Ltd. [1983] AC 520 has been
analysed in many subsequent decisions of the Court of Appeal. I
do not intend to embark on a further such analysis. The consensus
of judicial opinion, with which I concur, seems to be that the
decision of the majority is so far dependent upon the unique,
albeit non-contractual, relationship between the pursuer and the
defender in that case and the unique scope of the duty of care
owed by the defender to the pursuer arising from that relationship
that the decision cannot be regarded as laying down any principle
of general application in the law of tort or delict. The dissenting
speech of Lord Brandon of Oakbrook on the other hand enunciates
with cogency and clarity principles of fundamental importance
which are clearly applicable to determine the scope of the duty of
care owed by one party to another in the absence, as in the
instant case, of either any contractual relationship or any such



- 12 -

uniquely proximate relationship as that on which the decision of
the majority in Junior Books was founded. Lord Brandon said, at
p. 549:

"My Lords, it appears to me clear beyond doubt that, there
being no contractual relationship between the respondents
and the appellants in the present case, the foundation, and
the only foundation, for the existence of a duty of care
owed by the defendants to the pursuers is the principle laid
down in the decision of your Lordships' House in Donoghue
v. Stevenson [1932] AC 562. The actual decision in that
case related only to the duty owed by a manufacturer of
goods to their ultimate user or consumer, and can be
summarised in this way: a person who manufactures goods
which he intends to be used or consumed by others is under
a duty to exercise such reasonable care in their manufacture
as to ensure that they can be used or consumed in the
manner intended without causing physical damage to persons
or their property. While that was the actual decision in
Donoghue v. Stevenson, it was based on a much wider
principle embodied in passages in the speech of Lord Atkin,
which have been quoted so often that I do not find it
necessary to quote them again here. Put shortly, that wider
principle is that, when a person can or ought to appreciate
that a careless act or omission on his part may result in
physical injury to other persons or their property, he owes a
duty to all such persons to exercise reasonable care to avoid
such careless act or omission. It is, however, of
fundamental importance to observe that the duty of care
laid down in Donoghue v. Stevenson was based on the
existence of a danger of physical injury to persons or their
property. That this is so is clear from the observations
made by Lord Atkin at pp. 581-582 with regard to the
statements of law of Brett M.R. in Heaven v. Fender (1883)
11 Q.B.D. 503, 509. It has further, until the present case,
never been doubted, so far as I know, that the relevant
property for the purpose of the wider principle on which the
decision in Donoghue v. Stevenson was based was property
other than the very property which gave rise to the danger
of physical damage concerned."

Later, at pp. 550-551, Lord Brandon, having referred to the
well known two-stage test of the existence of a duty of care
propounded by Lord Wilberforce in Anns' case, at pp. 751-752,
asked himself, at the second stage, the question "whether there
are any considerations which ought, inter alia, to limit the scope
of the duty which exists." He continued, at pp..551-552:

"To that second question I would answer that there are two
important considerations which ought to limit the scope of
the duty of care which it is common ground was owed by
the appellants to the respondents on the assumed facts of
the present case. The first consideration is that, in
Donoghue v. Stevenson itself and in all the numerous cases
in which the principle of that decision has been applied to
different but analogous factual situations, it has always been
either stated expressly, or taken for granted, that an
essential ingredient in the cause of action relied on was the
existence of danger, or the threat of danger, of physical



- 13 -

damage to persons or their property, excluding for this
purpose the very piece of property from the defective
condition of which such danger, or threat of danger, arises.
To dispense with that essential ingredient in a cause of
action of the kind concerned in the present case would, in
my view, involve a radical departure from long-established
authority. The second consideration is that there is no
sound policy reason for substituting the wider scope of the
duty of care put forward for the respondents for the more
restricted scope of such duty put forward by the appellants.
The effect of accepting the respondents^’ contention with
regard to the scope of the duty of care involved would be,
in substance, to create, as between two persons who are not
in any contractual relationship with each other, obligations
of one of those two persons to the other which are only
really appropriate as between persons who do have such a
relationship between them. In the case of a manufacturer
or distributor of goods, the position would be that he
warranted to the ultimate user or consumer of such goods
that they were as well designed, as merchantable and as fit
for their contemplated purpose as the exercise of reasonable
care could make them. In the case of sub-contractors such
as those concerned in the present case, the position would
be that they warranted to the building owner that the
flooring, when laid, would be as well designed, as free from
defects of any kind and as fit for its contemplated purpose
as the exercise of reasonable care could make it. In my
view, the imposition of warranties of this kind on one
person in favour of another, when there is no contractual
relationship between them, is contrary to any sound policy
requirement. It is, I think, just worth while to consider the
difficulties which would arise if the wider scope of the duty
of care put forward by the respondents were accepted. In
any case where complaint was made by an ultimate
consumer that a product made by some persons with whom
he himself had no contract was defective, by what standard
or standards of quality would the question of defectiveness
fall to be decided? In the case of goods bought from a
retailer, it could hardly be the standard prescribed by the
contract between the retailer and the wholesaler, or
between the wholesaler and the distributor, or between the
distributor and the manufacturer, for the terms of such
contracts would not even be known to the ultimate buyer.
In the case of subcontractors such as the appellants in the
present case, it could hardly be the standard prescribed by
the contract between the subcontractors and the main
contractors, for, although the building owner would probably
be aware of those terms, he could not, since he was not a
party to such contract, rely on any standard or standards
prescribed in it. It follows that the question by what
standard or standards alleged defects in a product
complained of by its ultimate user or consumer are to be
judged remains entirely at large and cannot be given any
just or satisfactory answer."

The reasoning in these passages receives powerful support
from the unanimous decision of the Supreme Court of the United
States of America in East River Steamship Corporation v.
Transamerica Delaval Inc. (1986) 106 S.Ct. 2295. Charterers of

- 14 -

supertankers claimed damages from turbine manufacturers resulting
from alleged design and manufacturing defects which caused the
supertankers to malfunction while on the high seas. The court
held, inter alia, that

"whether stated in negligence or strict liability, no products-
liability claim lies in admiralty when a commercial party
alleges injury only to the product itself resulting in purely
economic loss."

Blackmun J., delivering the judgment of the court said, at p. 2300-
2302:

"The intriguing question whether injury to a product itself
may be brought in tort has spawned a variety of answers.
At one end of the spectrum, the case that created the
majority land-based approach, Seely v. White Motor Co.,
(1965) 63 Cal.2d 9; 45 Cal.Rptr. 17; 403 P.2d 145 (defective
truck), held that preserving a proper role for the law of
warranty precludes imposing tort liability if a defective
product causes purely monetary harm. See also Jones &
Laughlin Steel Corporation v. Johns-Manville Sales
Corporation, 626 F.2d 280, 287 and n. 13 (CA3 1980) (citing
cases). At the other end of the spectrum is the minority
land-based approach, whose progenitor, Santor v. A. and M.
Karagheusian, Inc. (1965) M N.J. 52, 66-67; 207 A.2d 305,
312-313 (marred carpeting), held that a manufacturer's duty
to make nondefective products encompassed injury to the
product itself, whether or not the defect created an
unreasonable risk of harm. See also LaCrosse v. Schubert,
(1976) 72 Wis.2d 38, 44-45; 240 N.W.2d 124, 127-128. The
courts adopting this approach, including the majority of the
Courts of Appeals sitting in admiralty that have considered
the issue, e.g., Emerson G. M. Diesel Inc. v. Alaskan
Enterprise, 732 F.2d 1468 (CA9 1984), find that the safety
and insurance rationales behind strict liability apply equally
where the losses are purely economic. These courts reject
the Seely approach because they find it arbitrary that
economic losses are recoverable if a plaintiff suffers bodily
injury or property damage, but not if a product injures
itself. They also find no inherent difference between
economic loss and personal injury or property damage,
because all are proximately caused by the defendant's
conduct. Further, they believe recovery for economic loss
would not lead to unlimited liability because they think a
manufacturer can predict and insure against product failure.
See Emerson G. M. Diesel Inc. v. Alaskan Enterprise, at p.
1474. Between the two poles fall a number of cases that
would permit a products-liability action under certain
circumstances when a product injures only itself. These
cases attempt to differentiate between 'the disappointed
users . . . and the endangered ones,' Russell v. Ford Motor
Co. (1978) 281 Or. 587, 595; 575 P.2d 1383, 1387, and
permit only the latter to sue in tort. The determination
has been said to turn on the nature of the defect, the type
of risk, and the manner in which the injury arose. See
Pennsylvania Glass Sand Corporation v. Caterpillar Tractor
Co., 652 F.2d 1165, 1173 (CA3 1981) (relied on by the Court
of Appeals in this case). The Alaska Supreme Court allows



- 15 -




a tort action if the defective product creates a situation
potentially dangerous to persons or other property, and loss
occurs as a proximate result of that danger and under
dangerous circumstances. Northern Power & Engineering
Corporation v. Caterpillar Tractor Co. (1981) 623 P.2d 324,
329.

We find the intermediate and minority land-based
positions unsatisfactory. The intermediate positions, which
essentially turn on the degree of risk, are too indeterminate
to enable manufacturers easily to structure their business
behaviour. Nor do we find persuasive a distinction that
rests on the manner in which the product is injured. We
realize that the damage may be qualitative, occurring
through gradual deterioration or internal breakage. Or it
may be calamitous. Compare Morrow v. New Moon Homes
Inc., 548 P.2d 279 (Alaska 1976), with Cloud v. Kit
Manufacturing Co., 563 P.2d 248, 251 (Alaska 1977). But
either way, since by definition no person or other property
is damaged, the resulting loss is purely economic. Even
when harm to the product itself occurs through an abrupt,
accident-like event, the resulting loss due to repair costs,
decreased value, and lost profits is essentially the failure of
the purchaser to receive the benefit of its bargain -
traditionally the core concern of contract law. See E._
Farnsworth, Contracts (1982), para. 12.8, pp. 839-840. We
also decline to adopt the minority land-based view espoused
by Santor and Emerson. Such cases raise legitimate
questions about the theories behind restricting products
liability, but we believe that the countervailing arguments
are more powerful. The minority view fails to account for
the need to keep products liability and contract law in
separate spheres and to maintain a realistic limitation on
damages."

This appears to undermine the earlier American authorities
referred to by Richmond P. in the New Zealand case of Bowen v.
Paramount Builders (Hamilton) Ltd. (1977) 1 N.Z.L.R. 394, 410.
The opinion of Lord Brandon of Oakbrook in Junior Books Ltd, v.
Veitchi Co. Ltd. [1983] 1 AC 520 and that expressed by the
Supreme Court of the United States of America are entirely in
line with the majority decision of the Supreme Court of Canada in
Rivtow Marine Ltd, v. Washington Iron Works [1973] 6 W.W.R. 692
that the damages recoverable from the manufacturer by the hirers
of a crane which was found to have a defect which made it
unsafe to use did not include the cost of repairing the defect.

These principles are easy enough to comprehend and
probably not difficult to apply when the defect complained of is in
a chattel supplied complete by a single manufacturer. If the
hidden defect in the chattel is the cause of personal injury or of
damage to property other than the chattel itself, the manufacturer
is liable. But if the hidden defect is discovered before any such
damage is caused, there is no longer any room for the application
of the Donoghue v. Stevenson [1932] AC 562 principle. The
chattel is now defective in quality, but is no longer dangerous. It
may be valueless or it may be capable of economic repair. In
either case the economic loss is recoverable in contract by a
buyer or hirer of the chattel entitled to the benefit of a relevant



- 16 -

warranty of quality, but is not recoverable in tort by a remote
buyer or hirer of the chattel.

If the same principle applies in the field of real property to
the liability of the builder of a permanent structure which is
dangerously defective, that liability can only arise if the defect
remains hidden until the defective structure causes personal injury
or damage to property other than the structure itself. If the
defect is discovered before any damage is done, the loss sustained
by the owner of the structure, who has to repair or demolish it to
avoid a potential source of danger to third parties, would seem to
be purely economic. Thus, if I acquire a property with a
dangerously defective garden wall which is attributable to the bad
workmanship of the original builder, it is difficult to see any basis
in principle on which I can sustain an action in tort against the
builder for the cost of either repairing or demolishing the wall.
No physical damage has been caused. All that has happened is
that the defect in the wall has been discovered in time to prevent
damage occurring. I do not find it necessary for the purpose of
deciding the present appeal to express any concluded view as to
how far, if at all, the ratio decidendi of Anns v. Merton London
Borough Council [1978] AC 728 involves a departure from this
principle establishing a new cause of action in negligence against a
builder when the only damage alleged to have been suffered by the
plaintiff is the discovery of a defect in the very structure which
the builder erected.

My example of the garden wall, however, is that of a very
simple structure. I can see that more difficult questions may
arise in relation to a more complex structure like a dwelling-
house. One view would be that such a structure should be treated
in law as a single indivisible unit. On this basis, if the unit
becomes a potential source of danger when a hitherto hidden
defect in construction manifests itself, the builder, as in the case
of the garden wall, should not in principle be liable for the cost
of remedying the defect. It is for this reason that I now question
the result, as against the builder, of the decision in Batty v.
Metropolitan Property Realisations Ltd [1978] Q.B. 554.

However, ! can see that it may well be arguable that in the
case of complex structures, as indeed possibly in the case of
complex chattels, one element of the structure should be regarded
for the purpose of the application of the principles under
discussion as distinct from another element, so that damage to one
part of the structure caused by a hidden defect in another part
may qualify to be treated as damage to "other property," and
whether the argument should prevail may depend on the
circumstances of the case. It would be unwise and it is
unnecessary for the purpose of deciding the present appeal to
attempt to offer authoritative solutions to these difficult problems
in the abstract. I should wish to hear fuller argument before
reaching any conclusion as to how far the decision of the New
Zealand Court of Appeal in Bowen v. Paramount Builders
(Hamilton) Ltd, should be followed as a matter of English law. I
do not regard Anns v. Merton London Borough Council as resolving
that issue.

In the instant case the only hidden defect was in the
plaster. The only item pleaded as damage to other property was



- 17 -

"cost of cleaning carpets and other possessions damaged or dirtied
by falling plaster; £50." Once it appeared that the plaster was
loose, any danger of personal injury or of further injury to other
property could have been simply avoided by the timely removal of
the defective plaster. The only function of plaster on walls and
ceilings, unless it is itself elaborately decorative, is to serve as a
smooth surface on which to place decorative paper or paint.
Whatever case there may be for treating a defect in some part of
the structure of a building as causing damage to "other property"
when some other part of the building is injuriously affected, as for
example cracking in walls caused by defective foundations, it
would seem to me entirely artificial to treat the plaster as
distinct from the decorative surface placed upon it. Even if it
were so treated, the only damage to "other property" caused by
the defective plaster would be the loss of value of the existing
decorations occasioned by the necessity to remove loose plaster
which was in danger of falling. When the loose plaster in flat 37
was first discovered in 1980, the flat was in any event being
redecorated.

It seems to me clear that the cost of replacing the
defective plaster itself, either as carried out in 1980 or as
intended to be carried out in future, was not an item of damage
for which the builder of Chelwood House could possibly be made
liable in negligence under the principle of Donoghue v. Stevenson
or any legitimate development of that principle. To make him so
liable would be to impose upon him for the benefit of those with
whom he had no contractual relationship the obligation of one who
warranted the quality of the plaster as regards materials,
workmanship and fitness for purpose. I am glad to reach the
conclusion that this is not the law, if only for the reason that a
conclusion to the opposite effect would mean that the courts, in
developing the common law, had gone much farther than the
legislature were prepared to go in 1972, after comprehensive
examination of the subject by the Law Commission, in making
builders liable for defects in the quality of their work to all who
subsequently acquire interests in buildings they have erected. The
statutory duty imposed by the Act of 1972 was confined to
dwelling-houses and limited to defects appearing within six years.
The common law duty, if it existed, could not be so confined or
so limited. I cannot help feeling that consumer protection is an
area of law where legislation is much better left to the
legislators.

It follows from these conclusions that, even if Wates
themselves had been responsible for the plaster-work in flat 37,
the damages recoverable from them by D. & F. Estates would
have been a trivial sum and Mr. and Mrs. Tillman could have
established no claim for damages for disturbance. But, as already
indicated, the Court of Appeal's primary ground for allowing
Wates^’ appeal was that they had properly employed competent sub-
contractors to do the plaster work for whose negligence they were
not liable, and it is to this issue that I must now turn. The
submission in support of the appeal was put in three ways which
amount, as it seems to me, to three alternative formulations of
what is, in essence, the same proposition of law. Expressed in
summary form the three formulations are: (i) that Wates were
vicariously liable for the negligence of their sub-contractor; (ii)
that Wates as main contractors responsible for building Chelwood



- 18 -

House owed a duty to future lessees and occupiers of flats to take
reasonable care that the building should contain no hidden defects
of the kind which might cause injury to persons or property and
that this duty could not be delegated; (iii) that Wates as main
contractors owed a duty of care to future lessees and occupiers of
flats to supervise their sub-contractors to ensure that the sub-
contracted work was not negligently performed so as to cause such
defects.

It is trite law that the employer of an independent
contractor is, in general, not liable for the negligence or other
torts committed by the contractor in the course of the execution
of the work. To this general rule there are certain well-
established exceptions or apparent exceptions. Without
enumerating them it is sufficient to say that it was accepted by
Mr. Fernyhough Q.C. on behalf of the present appellants that the
instant case could not be accommodated within any of the
recognised and established categories by which the exceptions are
classified. But it has been rightly said that the so-called
exceptions

"are not true exceptions (at least so far as the theoretical
nature of the employer's liability is concerned) for they are
dependent upon a finding that the employer is, himself, in
breach of some duty which he personally owes to the
plaintiff. The liability is thus not truly a vicarious liability
and is to be distinguished from the vicarious liability of a
master for his servant." (see Clerk & Lindsell on Torts,
15th ed. (1982), para. 3-37, p. 185).

Herein lies Mr. Fernyhough's real difficulty. If Wates are to be
held liable for the negligent workmanship of their sub-contractors
(assumed for this purpose to result in dangerously defective work)
it must first be shown that in the circumstances they had assumed
a personal duty to all the world to ensure that Chelwood House
should be free of dangerous effects. This was the assumption upon
which the judge proceeded when he said: 'The duty of care itself
is of course not delegable." Whence does this non-delegable duty
arise? Mr. Fernyhough submits that it is a duty undertaken by
any main contractor in the building industry who contracts to
erect an entire building. I cannot agree because I cannot
recognise any legal principle to which such an assumption of duty
can be related. Just as I may employ a building contractor to
build me a house, so may the building contractor, subject to the
terms of my contract with him, in turn employ another to
undertake part of the work. If the mere fact of employing a
contractor to undertake building work automatically involved the
assumption by the employer of a duty of care to any person who
may be injured by a dangerous defect in the work caused by the
negligence of the contractor, this would obviously lead to absurd
results. If the fact of employing a contractor does not involve
the assumption of any such duty by the employer, then one who
has himself contracted to erect a building assumes no such liability
when he employs an apparently competent independent sub-
contractor to carry out part of the work for him. The main
contractor may, in the interests of the proper discharge for his
own contractual obligations, exercise a greater or lesser degree of
supervision over the work done by the sub-contractor. If in the
course of supervision the main contractor in fact comes to know



- 19 -

that the sub-contractor's work is being done in a defective and
foreseeably dangerous way and if he condones that negligence on
the part of the sub-contractor, he will no doubt make himself
potentially liable for the consequences as a joint tortfeasor. But
the judge made no finding against Wates of actual knowledge and
his finding that they "ought to have known" what the
manufacturer's instructions were depended upon and was vitiated
by his earlier misdirection that Wates owed a duty of care to
future lessees of Chelwood House flats in relation to their sub-
contractor's work.

Mr. Fernyhough relied on an unreported decision of Judge
Edgar Fay Q.C. in Queensway Discount Warehouses v. Graylaw
Properties Ltd., 19 February 1982 and upon the decision of Judge
Sir William Stabb Q.C. in Cynat Products Ltd, v. Landbuild
(Investment and Property) Ltd. [1984] 3 All E.R. 513. In so far as
the former decision relied on any general principle of law that a
main contractor is liable to a third party who suffers damage from
the negligently defective work done by his sub-contractor, I can
only say, as already indicated, that I can find no basis in law to
support any such principle. The relevant issue in the latter case,
as in Batty v. Metropolitan Property Realisations Ltd. [1978] Q.B.
554 in relation to the liability of the developer defendants, was
whether the defendants' admitted contractual liability was matched
by a parallel liability in tort. In both cases the issue was of
importance only as bearing upon the liability of insurers to
indemnify the defendants. I do not find authorities directed to
that question of any assistance in determining the scope of the
duty of care which one person owes to another entirely
independently of any contractual relationship on the basis of the
Donoghue v. Stevenson [1932] AC 562 principle.

More important is the decision of the New Zealand Court of
Appeal in Mount Albert Borough Council v. Johnson [1979] 2
N.Z.L.R. 234. This was another case of the purchaser of a flat
suffering damage due to the subsidence of a building erected on
inadequate foundations. One of the issues was whether the
plaintiff was entitled to recover damages against the development
company which had employed independent contractors to erect the
building. Delivering the judgment of Somers J. and himself, Cooke
J. said, at pp. 240 241:

"In the instant type of case a development company acquires
land, subdivides it, and has homes built on the lots for sale
to members of the general public. The company's interest
is primarily a business one. For that purpose it has
buildings put up which are intended to house people for
many years and it makes extensive and abiding changes in
the landscape. It is not a case of a landowner having a
house built for his own occupation initially - as to which we
would say nothing except that Lord Wilberforce's two-stage
approach to duties of care in Anns may prove of guidance
on questions of non-delegable duty also. There appears to
be no authority directly in point on the duty of such a
development company. We would hold that it is a duty to
see that proper care and skill are exercised in the building
of the houses and that it cannot be avoided by delegation to
an independent contractor."

- 20 -

As a matter of social policy this conclusion may be entirely
admirable. Indeed, it corresponds almost precisely to the policy
underlying the Law Commission's recommendations in paragraph 26
of the report (Law Commission No. 40) to which I have already
referred and which was implemented by section 1(1) and (4) of the
Act of 1972. As a matter of legal principle, however, I can
discover no basis on which it is open to the court to embody this
policy in the law without the assistance of the legislature and it is
again, in my opinion, a dangerous course for the common law to
embark upon the adoption of novel policies which it sees as
instruments of social justice but to which, unlike the legislature, it
is unable to set carefully defined limitations.

The conclusion I reach is that Wates were under no liability
to the plaintiffs for damage attributable to the negligence of their
plastering sub-contractor in failing to follow the instructions of the
manufacturer of the plaster they were using, but that in any event
such damage could not have included the cost of renewing the
plaster. Accordingly I would dismiss the appeal with costs.

LORD TEMPLEMAN

My Lords,

I have had the advantage of reading in draft the speeches
prepared by my noble and learned friends Lord Bridge of Harwich
and Lord Oliver of Aylmerton. I agree with them, and I too
would dismiss this appeal.

LORD ACKNER

My Lords,

I have had the advantage of reading in draft the speeches
prepared by my noble and learned friends Lord Bridge of Harwich
and Lord Oliver of Aylmerton. I agree with them, and I too
would dismiss this appeal.




LORD OLIVER OF AYLMERTON

My Lords,

I have had the advantage of reading in draft the speech
prepared by my noble and learned friend, Lord Bridge of Harwich,
and I agree that the appeal should be dismissed for the reasons
which he has given. In particular, I agree with his conclusion
that, quite apart from the question of Wates^’ liability for the
negligent performance by their sub-contractors of the duties under
the plastering sub-contract, the cost of replacing the defective
plaster would, in any event, be irrecoverable.

- 21 -

It is, I think, clear that the decision of this House in Anns
v. Merton London Borough Council [1978] AC 728 introduced, in
relation to the construction of buildings, an entirely new type of
product liability, if not, indeed, an entirely novel concept of the
tort of negligence. What is not clear is the extent of the liability
under this new principle. In the context of the instant appeal, the
key passage from the speech of Lord Wilberforce in that case is
that which commences at p. 759, and which has already been
quoted by my noble and learned friend.

A number of points emerge from this:

1. The damage which gives rise to the action may be
   damage to the person or to property on the ordinary Donoghue v.
   Stevenson principle. But it may be damage to the defective
   structure itself which has, as yet, caused no injury either to
   person or to other property, but has merely given rise to a risk of
   injury.

2. There may not even be "damage" to the structure. It
   may have been inherently defective and dangerous ab initio without
   any deterioration between the original construction and the
   perception of risk.

3. The damage to or defect in the structure, if it is to give
   rise to a cause of action, must be damage of a particular kind,
   i.e. damage or defect likely to cause injury to health or - possibly
   - injury to other property (an extension arising only by implication
   from the approval by this House of the decision of the Court of
   Appeal in Dutton v. Bognor Regis Urban District Council [1972] 1
   Q.B. 373). "

4. The cause of action so arising does not arise on delivery
   of the defective building or on the occurrence of the damage but
   upon the damage becoming a "present or imminent risk" to health
   or (semble) to property and it is for that risk that compensation is
   to be awarded.

5. The measure of damage is at large but, by implication
   from the approval of the dissenting judgment in the Canadian case
   referred to (Rivtow Marine Ltd, v. Washington Iron Works [1973] 6
   W.W.R. 692), it must at least include the cost of averting the
   danger.

These propositions involve a number of entirely novel
concepts. In the first place, in no other context has it previously
been suggested that a cause of action in tort arises in English law
for the defective manufacture of an article which causes no injury
other than injury to the defective article itself. If I buy a
secondhand car to which there has been fitted a pneumatic tyre
which, as a result of carelessness in manufacture, is dangerously
defective and which bursts, causing injury to me or to the car, no
doubt the negligent manufacturer is liable in tort on the ordinary
application of Donoghue v. Stevenson. But if the tyre bursts
without causing any injury other than to itself or if I discover the
defect before a burst occurs, I know of no principle upon which I
can claim to recover from the manufacturer in tort the cost of
making good the defect which, in practice, could only be the cost



- 22 -

of supplying and fitting a new tyre. That would be, in effect, to
attach to goods a non-contractual warranty of fitness which would
follow the goods into whosoever hands they came. Such a concept
was suggested, obiter, by Lord Denning M.R. in Dutton's case, at
p. 396, but it was entirely unsupported by any authority and is, in
my opinion, contrary to principle.

The proposition that damages are recoverable in tort for
negligent manufacture when the only damage sustained is either an
initial defect in or subsequent injury to the very thing that is
manufactured is one which is peculiar to the construction of a
building and is, I think, logically explicable only on the hypothesis
suggested by my noble and learned friend, Lord Bridge of Harwich,
that in the case of such a complicated structure the other
constituent parts can be treated as separate items of property
distinct from that portion of the whole which has given rise to the
damage - for instance, in Anns' case, treating the defective
foundations as something distinct from the remainder of the
building. So regarded this would be no more than the ordinary
application of the Donoghue v. Stevenson principle. It is true that
in such a case the damages would include, and in some cases
might be restricted to, the costs of replacing or making good the
defective part, but that would be because such remedial work
would be essential to the repair of the property which had been
damaged by it.

But even so there are anomalies. If that were the correct
analysis, then any damage sustained by the building should ground
an action in tort from the moment when it occurs. But Anns tells
us - and, at any rate so far as the local authority was concerned,
this was a ground of decision and not merely obiter - that the
cause of action does not arise until the damage becomes a present
or imminent danger to the safety or health of the occupants and
the damages recoverable are to be measured, not by the cost of
repairing the damage which has been actually caused by the
negligence of the builder, but by the (possibly much more limited)
cost of putting the building into a state in which it is no longer a
danger to the health or safety of the occupants.

It has, therefore, to be recognised that Anns introduced not
only a new principle of a parallel common law duty in a local
authority stemming from but existing alongside its statutory duties
and conditioned by the purpose of those statutory duties, but also
an entirely new concept of the tort of negligence in cases relating
to the construction of buildings. The negligent builder is not
answerable for all the reasonably foreseeable consequences of his
negligence, but only for consequences of a particular type.
Moreover, the consequence which triggers the liability is not, in
truth, the damage to the building, qua damage, but the creation of
the risk of apprehended damage to the safety of person or
property. Take, for instance, the case of a building carelessly
constructed in a manner which makes it inherently defective ab
initio but where the defect comes to light only as a result, say, of
a structural survey carried out several years later at the instance
of a subsequent owner. What gives rise to the action is then not
"damage" in any accepted sense of the word but the perception of
possible but avoidable damage in the future. The logic of
according the owner a remedy at that stage is illustrated by the
dissenting judgment of Laskin J. in the Canadian case referred to



- 23 -

and it is this: if the plaintiff had been injured the negligent
builder would undoubtedly have been liable on Donoghue v.
Stevenson principles. He has not been injured, but he has been
put on notice to an extent sufficient to deprive himself of any
remedy if he is now injured and he therefore suffers, and suffers
only, the immediate economic loss entailed in preventing or
avoiding the injury and the concomitant liability for it of the
negligent builder which his own perception has brought to his
attention. It is fair therefore that he should recover this loss,
which is as much due to the fault of the builder as would have
been the injury if it had occurred. Thus it has to be accepted
either that the damage giving rise to the cause of action is pure
economic loss not consequential upon injury to person or property -
a concept not so far accepted into English law outside the Hedley
Byrne type of liability (Hedley Byrne & Co. Ltd, v. Heller &
Partners Ltd. [1964] AC 465) - or that there is a new species of
the tort of negligence in which the occurrence of actual damage is
no longer the gist of the action but is replaced by the perception
of the risk of damage.

I think that it has to be accepted that this involves an
entirely new concept of the common law tort of negligence in
relation to building cases. Its ambit remains, however, uncertain.
So far as Anns' case was concerned with liability arising from
breach of statutory duty, the liability of the builder was a matter
of direct decision. No argument was advanced on behalf of the
builder in that case, but it was an essential part of the rationale
of the decision in relation to the liability of the local authority
that there was a precisely parallel and co-existing liability in the
builder. Moreover, it is, I think, now entirely clear that the
vendor of a defective building who is also the builder enjoys no
immunity from the ordinary consequences of his negligence in the
course of constructing the building, but beyond this and so far as
the case was concerned with the extent of or limitations on his
liability for common law negligence divorced from statutory duty,
Lord Wilberforce's observations were, I think, strictly obiter. My
Lords, so far as they concern such liability in respect of damage
which has actually been caused by the defective structure other
than by direct physical damage to persons or to other property, I
am bound to say that, with the greatest respect to their source, I
find them difficult to reconcile with any conventional analysis of
the underlying basis of liability in tort for negligence. A cause of
action in negligence at common law which arises only when the
sole damage is the mere existence of the defect giving rise to the
possibility of damage in the future, which crystallizes only when
that damage is imminent, and the damages for which are
measured, not by the full amount of the loss attributable to the
defect but by the cost of remedying it only to the extent
necessary to avert a risk of physical injury, is a novel concept.
Regarded as a cause of action arising not from common law
negligence but from breach of a statutory duty, there is a logic in
so limiting it as to conform with the purpose for which the
statutory duty was imposed, that is to say, the protection of the
public from injury to health or safety. But there is, on that
footing, no logic in extending liability for a breach of statutory
duty to cases where the risk of injury is a risk of injury to
property only, nor, as it seems to me, is there any logic in
importing into a pure common law claim in negligence against a
builder the limitations which are directly related only to breach of



- 24 -

a particular statutory duty. For my part, therefore, I think the
correct analysis, in principle, to be simply that, in a case where
no question of breach of statutory duty arises, the builder of a
house or other structure is liable at common law for negligence
only where actual damage, either to person or to property, results
in carelessness on his part in the course of construction. That the
liability should embrace damage to the defective article itself is,
of course, an anomaly which distinguishes it from liability for the
manufacture of a defective chattel but it can, I think, be
accounted for on the basis which my noble and learned friend,
Lord Bridge of Harwich, suggested, namely that, in the case of a
complex structure such as a building, individual parts of the
building fall to be treated as separate and distinct items of
property. On that footing, damage caused to other parts of the
building from, for instance, defective foundations or defective
steel-work would ground an action but not damage to the defective
part itself except in so far as that part caused other damage,
when the damages would include the cost of repair to that part so
far as necessary to remedy damage caused to other parts. Thus,
to remedy cracking in walls and ceilings caused by defective
foundations necessarily involves repairing or replacing the
foundations themselves. But, as in the instant case, damage to
plaster caused simply by defective fixing of the plaster itself
would ground no cause of action apart from contract or under the
Defective Premises Act 1972. On what basis and apart from
statute is a builder, in contradistinction to the manufacturer of a
chattel, to be made liable beyond this? There is, so far as I am
aware, and apart from Dutton v. Bognor Regis Urban District
Council [1972] 1 Q.B. 373 no English authority prior to Anns v.
Merton London Borough Council [1978] AC 728 supporting or even
suggesting such a liability. Dutton^’s case was followed by the
Court of Appeal in New Zealand in Bowen v. Paramount Builders
(Hamilton) Ltd. [1977] 1 N.Z.L.R. 394 where Richmond P., at p.
410, defined the builder's duty as

"a duty of care not to create latent sources of physical
danger to the person or property of third persons whom he
ought reasonably to foresee as likely to be affected
thereby."

He could see no reason why "if the latent defect causes actual
physical damage to the structure of the house" such damage should
not give rise to a cause of action. In so holding, the court was
clearly influenced by certain United States decisions whose
authority has now been much reduced if not destroyed by the
Supreme Court decision in East River Steamship Corporation v.
Transamerica Delaval Inc., 106 S.Ct. 2295 referred to by my noble
and learned friend. The measure of damage in Bowen's case went
a great deal beyond that suggested in Anns, for it not only
covered the cost of putting the building into a state in which it
was no longer dangerous to health or safety but extended to the
restoration of its aesthetic appearance and depreciation in value.
This really suggests what is, in effect, a transmissible warranty of
fitness and, for the reasons already mentioned, I do not for my
part think that Bowen's case can be supported as an accurate
reflection of the law of England. Rivtow Marine Ltd, v.
Washington Ironworks (1973) 6 W.W.R. 692, the dissenting judgment
in which was, to some extent, relied upon by Lord Wilberforce in
Anns, does not, I think, really assist very much. It is true that it



- 25 -

was there held by the majority of the Supreme Court of Canada
that the manufacturers and the supplier of defective equipment
were liable for the economic loss suffered by the plaintiff as a
result of the defective equipment having to be taken out of
service, but the basis for the decision was the doctrine of reliance
established by Hedley Byrne which placed upon the defendants a
duty to warn of defects of which they were aware. Even on this
basis, however, the damages did not extend to the cost of
repairing the defective article itself.

Since Anns' case there have, of course, been the decision of
the Court of Appeal in Batty v. Metropolitan Realisations Ltd.
[1978] 1 Q.B. 554 and the decision of this House in Junior Books
Ltd, v. Veitchi Co. Ltd. [1983] AC 520. I do not, for my part,
think that the latter is of any help in the present context. As my
noble and learned friend, Lord Bridge of Harwich, has mentioned it
depends upon so close and unique a relationship with the plaintiff
that it is really of no use as an authority on the general duty of
care and it rests, in any event, upon the Hedley Byrne doctrine of
reliance. So far as the general limits of the general duty of care
in negligence are concerned, I, too, respectfully adopt what is said
in the dissenting speech in that case of Lord Brandon of Oakbrook.

Batty v. Metropolitan Realisations Ltd., however, is directly
in point and it needs to be carefully considered because it is, in
my opinion, equally difficult to reconcile with any previously
accepted concept of the tort of negligence. The defendant builder
in that case had previously owned the land on which the plaintiff's
house was built and was working in close conjunction with the
plaintiff's vendor, who had bought the land from him. Thus the
plaintiffs had a contractual relationship with the vendor, but none
with the builder. There was no negligence in the construction of
the house as such, nor was there any breach of statutory duty, nor
had any damage yet occurred to the house. The negligence
consisted solely in not appreciating what the builder ought
reasonably to have appreciated, that is to say, that the
immediately adjacent land was in such a condition that it would
ultimately bring about the subsidence of the plaintiff's land and
the consequent destruction of anything built upon it. At the date
of the action and of the hearing no actual damage had been
occasioned to the house. Ail that had happened was that a part
of the garden had subsided, that being the event which alerted the
plaintiffs to the danger which threatened the house. That,
however, was not an event in any way attributable to fault on
anyone's part but merely to the natural condition of the adjoining
land. So that although there had been physical damage to the
garden, it was not physical damage caused by any neglect on the
part of the builders. The case is thus, on analysis, one in which
the claim was for damages for pure economic loss caused by the
putting onto the market of a product which, because defective,
would become a danger to health and safety and thus of less value
than it was supposed to be. It is not specified in the report of
the case how the damages of £13,000 were calculated, but it
seems that that sum must have been based on the difference
between the market value of the house (which was doomed to
destruction and therefore valueless) and the value of an equivalent
house built on land not subject to landslips. Thus what the
plaintiffs obtained from the builders by way of damages in tort
was the sum for which the builders would have been liable if they



- 26 -

had given an express contractual warranty of fitness - a sum
related directly not to averting the danger created by the builders'
negligence but to the replacement of an asset which, by reason of
the danger, had lost its value. The decision in Batty's case was
based upon Anns' case, but in fact went one step further because
there was not in fact any physical damage resulting from the
builders' negligence, although Megaw L.J., at p. 571, appears to
have considered that what mattered was the occurrence of physical
damage to some property of the plaintiff, however caused. As in
Anns, the cause of action was related not to damage actually
caused by the negligent act but to the creation of the danger of
damage, and the case is therefore direct authority for the
recovery of damages in negligence for pure economic loss - a
proposition now firmly established in New Zealand (see Mount
Albert Borough Council v. Johnson [1979] 2 N.Z.L.R. 234).

My Lords, I confess to the greatest difficulty in reconciling
this with any previously accepted concept of the tort of negligence
at common law and I share the doubt expressed by my noble and
learned friend, Lord Bridge of Harwich, whether it was correctly
decided, at any rate so far as the liability of the builder was
concerned. The case was, however, one in which the builder and
the developer, with whom the plaintiffs had directly contractual
relationship, were, throughout, acting closely in concert and it may
be that the actual decision, although not argued on this ground,
can be justified by reference to the principle of reliance
established by the decision of this House in Hedley Byrne & Co.
Ltd, v. Heller & Partners Ltd. [1964] AC 465

My Lords, I have to confess that the underlying logical basis
for and the boundaries of the doctrine emerging from Anns v.
Merton London Borough Council [1978] AC 728 are not entirely
clear to me and it is in any event unnecessary for the purposes of
the instant appeal to attempt a definitive exposition. This much
at least seems clear: that in so far as the case is authority for
the proposition that a builder responsible for the construction of
the building is liable in tort at common law for damage occurring
through his negligence to the very thing which he has constructed,
such liability is limited directly to cases where the defect is one
which threatens the health or safety of occupants or of third
parties and (possibly) other property. In such a case, however, the
damages recoverable are limited to expenses necessarily incurred in
averting that danger. The case cannot, in my opinion, properly be
adapted to support the recovery of damages for pure economic loss
going beyond that, and for the reasons given by my noble and
learned friend, with whose analysis I respectfully agree, such loss
is not in principle recoverable in tort unless the case can be
brought within the principle of reliance established by Hedley
Byrne. In the instant case the defective plaster caused no damage
to the remainder of the building and in so far as it presented a
risk of damage to other property or to the person of any occupant
that was remediable simply by the process of removal. I agree,
accordingly, for the reasons which my noble and learned friend has
given, that the cost of replacing the defective plaster is not an
item for which the builder can be held liable in negligence. I too
would dismiss the appeal.

- 27 -

LORD JAUNCEY OF TULLICHETTLE

My Lords,

I have had the advantage of reading in draft the speeches
prepared by my noble and learned friends Lord Bridge of Harwich
and Lord Oliver of Aylmerton. I agree with them, and would
dismiss this appeal.

- 28 -